Leasehold glossary

What is a balancing charge?

A balancing charge is the year-end adjustment between the estimated service charge you paid on account and the actual costs the landlord incurred. When the final accounts are prepared, if actual costs exceeded the estimate you are asked for the balance; if they came in under, you should receive a credit or refund.

Most leaseholders pay their service charge in advance, based on an estimated budget, through on-account payments. That estimate is exactly that — a forecast made before the year begins. A balancing charge (sometimes called a "balancing adjustment" or "year-end balance") is what squares the estimate with reality once the actual costs are known.

How the reconciliation works

At the end of the service charge year the landlord or managing agent prepares the final ("actual") accounts, setting out what was really spent. Your share of the actual costs is compared with what you paid on account:

  • Actual costs higher than the estimate — you are asked to pay the shortfall. That is the balancing charge in its most common form.
  • Actual costs lower than the estimate — the surplus is yours. It is usually carried forward as a credit against next year's charges, or refunded.

This mechanism is built into the statute. Under Section 19(2) of the Landlord and Tenant Act 1985, where a service charge is payable before the costs are incurred, no more than a reasonable amount is payable in advance, and once the costs have been incurred "any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise". The balancing charge is that adjustment.

Watch the timing — the 18-month rule

Good to know: a balancing charge that lands a long time after the year it relates to can fall foul of Section 20B of the Landlord and Tenant Act 1985. If costs were incurred more than 18 months before they are demanded, you are not liable to pay them — unless, within that 18 months, you were notified in writing that the costs had been incurred and that you would be required to contribute. Always check the date on a late balancing charge.

What to check on a balancing charge

  • Do the accounts add up? The balance should reconcile to the actual accounts — ask for the certified year-end accounts if you have not seen them.
  • Are the underlying costs reasonable? A balancing charge only recovers the actual costs — and those costs still have to be reasonable under Section 19. A big balance often points to spending worth questioning.
  • Is it in time? Check the 18-month rule under Section 20B for any costs demanded late.
  • Were you credited a surplus? If a previous year came in under budget, make sure that credit has actually been applied.

How this shows up in your service charges

A surprise balancing charge is one of the most common reasons leaseholders come to us. Our free AI audit reconciles your on-account payments against the actual accounts, checks the Section 20B timing, and flags whether the underlying costs are challengeable under the Landlord and Tenant Act 1985.

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